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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission File Number: 001-34108

DIGIMARC CORPORATION

(Exact name of registrant as specified in its charter)

Oregon	26-2828185
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

9405 SW Gemini Drive, Beaverton, Oregon 97008

(Address of principal executive offices) (Zip Code)

(503) 469-4800

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐  (Do not check if a smaller reporting company)	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).    Yes  ☐    No   ☒

As of April 20, 2018, there were 11,847,280 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

Table of Contents

PART I FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):	3
	Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017	3
	Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017	4
	Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2018 and 2017	5
	Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 6.	Exhibits	33
SIGNATURES		34

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

DIGIMARC CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(UNAUDITED)

	March 31,			December 31,
	2018			2017
ASSETS
Current assets:
Cash and cash equivalents	$	48,449		$	40,823
Marketable securities		15,219			26,915
Trade accounts receivable, net		3,790			6,404
Other current assets		1,888			2,171
Total current assets		69,346			76,313
Property and equipment, net		4,103			4,236
Intangibles, net		6,478			6,381
Goodwill		1,114			1,114
Other assets		324			326
Total assets	$	81,365		$	88,370
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities	$	1,464		$	1,914
Deferred revenue		2,839			3,124
Total current liabilities		4,303			5,038
Deferred rent and other long-term liabilities		941			985
Total liabilities		5,244			6,023
Commitments and contingencies (Note 12)
Shareholders’ equity:
Preferred stock (par value $0.001 per share, 2,500 authorized, 10 shares    issued and outstanding at March 31, 2018 and December 31, 2017)		50			50
Common stock (par value $0.001 per share, 50,000 authorized, 11,847 and    11,651 shares issued and outstanding at March 31, 2018 and December 31, 2017,    respectively)		12			12
Additional paid-in capital		157,540			155,793
Accumulated deficit		(81,481	)		(73,508	)
Total shareholders’ equity		76,121			82,347
Total liabilities and shareholders’ equity	$	81,365		$	88,370

The accompanying notes are an integral part of these consolidated financial statements.

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DIGIMARC CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(UNAUDITED)

	Three			Three
	Months			Months
	Ended			Ended
	March 31,			March 31,
	2018			2017
Revenue:
Service	$	3,507		$	3,696
Subscription		1,578			1,445
License		528			950
Total revenue		5,613			6,091
Cost of revenue:
Service		1,563			1,635
Subscription		482			556
License		140			118
Total cost of revenue		2,185			2,309
Gross profit		3,428			3,782
Operating expenses:
Sales and marketing		4,887			3,992
Research, development and engineering		3,947			3,459
General and administrative		2,632			2,385
Intellectual property		315			392
Total operating expenses		11,781			10,228
Operating loss		(8,353	)		(6,446	)
Other income, net		252			118
Loss before income taxes		(8,101	)		(6,328	)
Benefit (provision) for income taxes		(11	)		110
Net loss	$	(8,112	)	$	(6,218	)
Earnings (loss) per common share:
Loss per common share — basic	$	(0.72	)	$	(0.61	)
Loss per common share — diluted	$	(0.72	)	$	(0.61	)
Weighted average common shares outstanding — basic		11,266			10,161
Weighted average common shares outstanding — diluted		11,266			10,161

The accompanying notes are an integral part of these consolidated financial statements.

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DIGIMARC CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

(UNAUDITED)

										Additional						Total
	Preferred Stock				Common Stock					Paid-in			Accumulated			Shareholders'
	Shares		Amount		Shares			Amount		Capital			Deficit			Equity
BALANCE AT DECEMBER 31, 2016		10	$	50		10,523		$	11	$	120,985		$	(47,712	)	$	73,334
Exercise of stock options		—		—		19			—		177			—			177
Issuance of restricted common stock		—		—		178			—		—			—			—
Forfeiture of restricted common stock		—		—		(2	)		—		—			—			—
Purchase and retirement of common stock		—		—		(23	)		—		(583	)		—			(583	)
Stock-based compensation		—		—		—			—		1,573			(25	)		1,548
Net loss		—		—		—			—		—			(6,218	)		(6,218	)
BALANCE AT MARCH 31, 2017		10	$	50		10,695		$	11	$	122,152		$	(53,955	)	$	68,258
BALANCE AT DECEMBER 31, 2017		10	$	50		11,651		$	12	$	155,793		$	(73,508	)	$	82,347
Exercise of stock options		—		—		46			—		560			—			560
Issuance of restricted common stock		—		—		178			—		—			—			—
Forfeiture of restricted common stock		—		—		(10	)		—		—			—			—
Purchase and retirement of common stock		—		—		(18	)		—		(528	)		—			(528	)
Stock-based compensation		—		—		—			—		1,715			—			1,715
Cumulative effect of the adoption of the new revenue standard, net of tax		—		—		—			—		—			139			139
Net loss		—		—		—			—		—			(8,112	)		(8,112	)
BALANCE AT MARCH 31, 2018		10	$	50		11,847		$	12	$	157,540		$	(81,481	)	$	76,121

The accompanying notes are an integral part of these consolidated financial statements.

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DIGIMARC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(UNAUDITED)

	Three			Three
	Months			Months
	Ended			Ended
	March 31,			March 31,
	2018			2017
Cash flows from operating activities:
Net loss	$	(8,112	)	$	(6,218	)
Adjustments to reconcile net loss to net cash used in    operating activities:
Depreciation, amortization and write-off of property and equipment		380			299
Amortization and write-off of intangibles		146			257
Stock-based compensation		1,671			1,503
Changes in operating assets and liabilities:
Trade accounts receivable		2,614			1,274
Other current assets		304			70
Other assets		44			55
Accounts payable and other accrued liabilities		(420	)		128
Deferred revenue		(219	)		(498	)
Net cash used in operating activities		(3,592	)		(3,130	)
Cash flows from investing activities:
Purchase of property and equipment		(302	)		(605	)
Capitalized patent costs		(208	)		(200	)
Maturity of marketable securities		18,657			16,399
Purchase of marketable securities		(6,961	)		(10,561	)
Net cash provided by investing activities		11,186			5,033
Cash flows from financing activities:
Exercise of stock options		560			177
Purchase of common stock		(528	)		(583	)
Net cash provided by (used in) financing activities		32			(406	)
Net increase in cash and cash equivalents		7,626			1,497
Cash and cash equivalents at beginning of period		40,823			11,638
Cash and cash equivalents at end of period	$	48,449		$	13,135
Supplemental disclosure of cash flow information:
Cash received (paid) for income taxes, net	$	113		$	(13	)
Supplemental schedule of non-cash investing activities:
Property and equipment and patent costs in accounts payable	$	(64	)	$	(120	)
Stock-based compensation capitalized to software and patent costs	$	44		$	45

The accompanying notes are an integral part of these consolidated financial statements.

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

(UNAUDITED)

1. Description of Business and Significant Accounting Policies

Description of Business

Digimarc Corporation (“Digimarc” or the “Company”), an Oregon corporation, enables governments, banks and businesses around the world to automatically and reliably identify and interact with virtually any media. The Company has pioneered the Digimarc® Intuitive Computing Platform (ICP^TM), a comprehensive set of technologies for identifying, discovering and interacting with digitally-enhanced media. The platform includes Digimarc Barcode, a proprietary method for imperceptibly enhancing packaging, print, images, thermal labels, audio and other objects with data that is detected by enabled devices, such as smart phones, computers, barcode scanners and machine-vision equipment. Digimarc Discover software enables an ecosystem of connected devices to easily identify content or materials and deliver information.

Interim Consolidated Financial Statements

Our significant accounting policies are detailed in "Note 1: Description of Business and Summary of Significant Accounting Policies" of our Annual Report on Form 10-K for the year ended December 31, 2017. Significant changes to our accounting policies as a result of adopting Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers,” are discussed in Note 3 below.

The accompanying interim consolidated financial statements have been prepared from the Company’s records without audit and, in management’s opinion, include all adjustments (consisting of only normal recurring adjustments) necessary to fairly reflect the financial condition and the results of operations for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).

These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on February 22, 2018. The results of operations for the interim periods presented in these consolidated financial statements are not necessarily indicative of the results for the full year.

Reclassifications

Certain prior period amounts in the accompanying consolidated financial statements and notes thereto have been reclassified to conform to current period presentation. These reclassifications had no material effect on the results of operations or financial position for any period presented.

Contingencies

The Company evaluates all pending or threatened contingencies or commitments, if any, that are reasonably likely to have a material adverse effect on the Company’s operations or financial position. The Company assesses the probability of an adverse outcome and determines if it is remote, reasonably possible or probable as defined in accordance with the provisions of ASC 450, “Contingencies.” If information available prior to the issuance of the financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements, and the amount of the loss, or the range of probable loss can be reasonably estimated, then the loss is accrued and charged to operations. If no accrual is made for a loss contingency because one or both of the conditions pursuant to ASC 450 are not met, but the probability of an adverse outcome is at least reasonably possible, the Company will disclose the nature of the contingency and provide an estimate of the possible loss or range of loss, or state that such an estimate cannot be made.

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Accounting Pronouncements Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU No. 2014-09 provides specific guidance to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU replaces most existing revenue recognition guidance in U.S. GAAP. In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date of the new revenue standard for public entities by one-year to annual reporting periods beginning after December 31, 2017, and interim periods beginning in the first interim period within the year of adoption. The guidance permits the use of either the retrospective or cumulative effect transition method. The Company elected to use the cumulative effect transition method. The Company adopted the new standard on January 1, 2018. Upon adoption, the Company recorded a $139 increase to opening retained earnings to reflect the impact of adopting the new standard using the cumulative effect transition method. The adoption of the standard did not have a material impact on the Company’s financial condition, results of operations and cash flows.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments (Topic 230).” ASU No. 2016-15 adds or clarifies guidance on specific cash flow issues to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The amendments in this update are effective for fiscal years beginning after December 31, 2017, and interim periods beginning in the first interim period within the year of adoption. Any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in this update are to be applied retrospectively to all periods presented but may be applied prospectively from the earliest date practicable if retrospective application would be impracticable. The adoption of this standard did not to have a material impact on the Company’s cash flows and disclosures.

Accounting Pronouncements Issued But Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which supersedes Topic 840, Leases. ASU No. 2016-02 increases the transparency and comparability of organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This guidance requires that operating leases recognize a right-of-use asset and a lease liability measured at the present value of the lease payments in the statement of financial position, recognize a single lease cost allocated over the lease term on a straight-line basis, and classify all cash payments within operating activities in the statement of cash flows. The amendments in this update are effective for fiscal years beginning after December 31, 2018, and interim periods beginning in the first interim period within the year of adoption. Early adoption is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients that entities may elect to apply. Although the Company is currently assessing the potential future impact of adopting this standard, the Company expects the primary impact will be the recognition, on a discounted basis, of its minimum commitments under non-cancelable operating leases on its consolidated balance sheets, resulting in the recording of right of use assets and lease obligations. The Company’s minimum commitments under non-cancelable operating leases are disclosed in Note 7 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

2. Fair Value of Financial Instruments

The estimated fair values of the Company’s financial instruments, which include cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate their carrying values due to the short-term nature of these instruments. The Company records marketable securities at amortized cost, which approximates fair value.

The Company’s fair value hierarchy for its cash equivalents and marketable securities as of March 31, 2018 and December 31, 2017, respectively, was as follows:

March 31, 2018	Level 1		Level 2		Level 3		Total
Money market securities	$	1,082	$	—	$	—	$	1,082
Commercial paper		—		50,997		—		50,997
Federal agency notes		—		5,006		—		5,006
Corporate notes		—		3,744		—		3,744
U.S. treasuries		—		2,000		—		2,000
Total	$	1,082	$	61,747	$	—	$	62,829

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December 31, 2017	Level 1		Level 2		Level 3		Total
Money market securities	$	2,197	$	—	$	—	$	2,197
Commercial paper		—		49,834		—		49,834
Federal agency notes		—		10,715		—		10,715
U.S. treasuries		—		1,996		—		1,996
Corporate notes		—		1,934		—		1,934
Total	$	2,197	$	64,479	$	—	$	66,676

The fair value maturities of the Company’s cash equivalents and marketable securities as of March 31, 2018 are as follows:

	Maturities by Period
	Total		Lessthan 1 year		1-5 years		5 - 10 years		More than 10 years
Cash equivalents and marketable securities	$	62,829	$	62,829	$	—	$	—	$	—

The Company considers all highly liquid marketable securities with original maturities of 90 days or less at the date of acquisition to be cash equivalents. Cash equivalents include money market funds and commercial paper totaling $47,610 and $39,761 at March 31, 2018 and December 31, 2017, respectively. Cash equivalents are carried at cost or amortized cost, which approximates fair value.

3. Revenue Recognition

The Company adopted ASC 606 “Revenue from Contracts with Customers” using the cumulative effect method with a date of initial application of January 1, 2018.  Therefore, the comparative period information has not been adjusted and continues to be reported under ASC 605 “Revenue Recognition” and ASC 985 “Software.”

ASC 606

Effective January 1, 2018, revenue is recognized in accordance with ASC 606 by applying the following steps:

Step 1:  Identify the contract(s) with a customer.

Step 2:  Identify the performance obligations in the contract.

Step 3:  Determine the transaction price.

Step 4:  Allocate the transaction price to the performance obligations in the contract.

Step 5:  Recognize when (or as) the entity satisfies a performance obligation.

The Company derives its revenue primarily from professional services, subscriptions and licensing of its intellectual property.  Applicable revenue recognition criteria are considered separately for each performance obligation as follows:

• Service revenue consists primarily of software development and consulting services. The majority of service revenue arrangements are structured as time and materials consulting agreements.  Revenue for development and consulting services is recognized as the services are performed. Billing for services rendered generally occurs within one month after the services are provided.

• Subscription revenue includes revenue derived from the sale of Digimarc Discover, Digimarc Barcode and Guardian products and services, is generally recurring, paid in advance and recognized over the term of the subscription, which is generally one to three years.

• License revenue originates primarily from licensing the Company’s intellectual property where the Company receives license fees and/or royalties as its income stream. License fees are recognized when the customer has the right to the intellectual property and the license period has begun and royalties are recognized in the quarter in which the royalty was earned.     

Some customer arrangements contain multiple performance obligations such as professional services, software licenses, and maintenance and support fees.  The Company accounts for individual products and services separately if they are distinct.  The

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consideration is allocated between distinct products and services based on their stand-alone selling prices.  For items that are not sold separately, the Company estimates the standalone selling price based on reasonably available information, including market conditions, specific factors affecting the Company, and information about the customer.

ASC 605 and ASC 985

For the comparative periods, revenue was recognized under ASC 605 and ASC 985 when the following four criteria were met:

(i) persuasive evidence of an arrangement exists,

(ii) delivery has occurred,

(iii) the fee is fixed or determinable, and

(iv) collection is reasonably assured or probable.

All revenue recognized in the Consolidated Statements of Operations is considered to be revenue from contracts with customers.

The following table provides information about disaggregated revenue by major product line in the Company’s single reporting segment:

	Three
	Months
	Ended
	March 31,
	2018
Service	$	3,507
Subscription
Guardian		989
Digimarc Discover and Digimarc Barcode		589
License		528
Total	$	5,613

The Company has contract assets from contracts with customers that are classified as “trade accounts receivables.”  Financial information about trade accounts receivable is included in Note 7.  

The Company has contract liabilities from contracts with customers which are classified as “deferred revenue.”  Deferred revenue consists of billings in advance for professional services, subscriptions and licenses for which the performance obligation has not been satisfied.

The following table provides information about contract liabilities from contracts with customers:

	March 31,		December 31,
	2018		2017
Deferred revenue, current	$	2,839	$	3,124
Deferred revenue, long term		32		42
Total	$	2,871	$	3,166

In addition to deferred revenue, the Company has backlog of $23,905 representing the transaction price from contractual obligations that are unsatisfied or partially unsatisfied as of March 31, 2018.

4. Segment Information

Geographic Information

The Company derives its revenue from a single reporting segment: media management solutions. Revenue is generated in this segment through development services, subscriptions and licensing of intellectual property. The Company markets its products in the United States (“U.S.”) and in non-U.S. countries through its sales and licensing personnel and channel partners.

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Revenue by geographic area, based upon the “bill-to” location, was as follows:

	Three		Three
	Months		Months
	Ended		Ended
	March 31,		March 31,
	2018		2017
Domestic	$	1,451	$	1,501
International (1)		4,162		4,590
Total	$	5,613	$	6,091

(1) Revenue from the Central Banks, consisting of a consortium of central banks around the world, is classified as international revenue. Reporting revenue by country for this customer is not practicable.

Major Customers

Customers per Regulation S-K, Item 101(c)(1)(vii) are as follows:

	Three			Three
	Months			Months
	Ended			Ended
	March 31,			March 31,
	2018			2017
Central Banks		67	%		62	%

Long-lived assets by geographical area

The Company’s long-lived assets are all domestic, domiciled in the U.S.

5. Stock-Based Compensation

Stock-based compensation includes expense charges for all stock-based awards to employees and directors. These awards include stock option grants and restricted stock awards.

Stock-based compensation expense related to internal labor is capitalized to software and patents based on direct labor hours charged to capitalized software and patent costs.

Determining Fair Value

Stock Options

Valuation and Amortization Method. The Company estimates the fair value of stock options on the date of grant (measurement date) using the Black-Scholes option valuation model. The Company amortizes the fair value of all awards on a straight-line basis over the requisite service periods, which are generally the vesting periods.

Expected Life. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms and vesting schedules of the awards. Stock options granted generally vest over three years and have contractual terms of ten years.

Expected Volatility. The Company estimates the volatility of its common stock at the date of grant based on the historical volatility of its common stock based on historical prices over the most recent period commensurate with the expected life of the award.

Risk-Free Interest Rate. The Company determines the risk-free interest rate using current U.S. treasury yields for bonds with a maturity commensurate with the expected life of the award.

Expected Dividend Yield. The expected dividend yield is derived by the Company’s expected annual dividend rate over the expected term divided by the fair value of the Company’s common stock at the grant date.

There were no stock options granted during the three months ended March 31, 2018 and 2017.

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Restricted Stock

The fair value of restricted stock awarded is based on the fair market value of the Company’s common stock on the date of the grant (measurement date), and is recognized over the vesting period of the award using the straight-line method. Restricted stock awards granted generally vest over three to four years for employee grants and one to three years for director grants.

Stock-based Compensation

	Three		Three
	Months		Months
	Ended		Ended
	March 31,		March 31,
	2018		2017
Stock-based compensation:
Cost of revenue	$	155	$	176
Sales and marketing		345		368
Research, development and engineering		298		308
General and administrative		801		573
Intellectual property		72		78
Stock-based compensation expense		1,671		1,503
Capitalized to software and patent costs		44		45
Total stock-based compensation	$	1,715	$	1,548

The following table sets forth total unrecognized compensation cost related to non-vested stock-based awards granted under all equity compensation plans:

	As of		As of
	March 31,		December 31,
	2018		2017
Total unrecognized compensation costs	$	17,072	$	13,669

Total unrecognized compensation costs will be adjusted for any future forfeitures if and when they occur.

The Company expects to recognize the total unrecognized compensation costs as of March 31, 2018 for stock options and restricted stock over weighted average periods through March 2022 as follows:

	Stock	Restricted
	Options	Stock
Weighted average period	1.37 years	1.58 years

As of March 31, 2018, under all of the Company’s stock-based compensation plans, equity awards to purchase an additional 783 shares were authorized for future grants under the plans. The Company issues new shares upon option exercises.

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Stock Option Activity

The following table reconciles the outstanding balance of stock options:

				Weighted		Weighted
				Average		Average		Aggregate
				Exercise		Grant Date		Intrinsic
Three months ended March 31, 2018:	Options			Price		Fair Value		Value
Outstanding at December 31, 2017		515		$	25.13	$	11.64
Granted		—			—
Exercised		(46	)		12.30		6.84
Forfeited or expired		—			—		—
Outstanding at March 31, 2018		469		$	26.38	$	12.10	$	992
Exercisable at March 31, 2018		302		$	24.10			$	992
Unvested at March 31, 2018		167		$	30.50			$	—

The aggregate intrinsic value is based on the closing price of $23.95 per share of Digimarc common stock on March 31, 2018, which would have been received by the optionees had all of the options with exercise prices less than $23.95 per share been exercised on that date.

Restricted Stock Activity

The following table reconciles the unvested balance of restricted stock:

			Weighted
			Average
	Numberof		Grant Date
Three months ended March 31, 2018:	Shares		Fair Value
Unvested balance, December 31, 2017		426	$	28.44
Granted		178	$	30.30
Vested